Defense Industry Seeks Relief as Fiscal Cliff Draws Near

By David Lerman -
Dec 27, 2012

The defense industry is urging
Congress to delay the fight over taxes and focus on avoiding the
automatic budget cuts that begin in six days.

The Aerospace Industries Association, which represents more
than 300 aerospace and defense companies and their suppliers,
said policy makers must find a way to avoid the across-the-board
cuts known as sequestration even if they can’t resolve broader
conflicts over tax rates and entitlement programs such as
Medicare.

“Risking American lives and livelihoods for political
leverage is wrong,” said Marion Blakey, the group’s president
and chief executive officer, in a statement.

“The victims of this political gamesmanship will be the
warfighters who risk their lives to protect our country and the
American workers who will start losing their jobs when this game
implodes on Jan. 2, 2013,” Blakey said.

While defense companies have lobbied for months against the
budget cuts, their effort has been overshadowed by the partisan
dispute over extending tax cuts as the deadline for the so-
called fiscal cliff begins to approach.

If sequestration takes effect as scheduled, it would
require cutting about $55 billion from the Pentagon’s fiscal
2013 budget, Deputy Defense Secretary Ashton Carter has said.
That amounts to an across-the-board cut of roughly 9 percent
from the department’s $613.9 billion total budget request, which
includes war spending.

Defense Cliffhanger

A Gallup poll conducted Dec. 21 and 22 found almost half of
Americans -- 48 percent -- say President Barack Obama and
Congress are unlikely to avoid the fiscal cliff, a combination
of tax increases and spending cuts that would total more than
$600 billion in the coming year. That polling result is up from
40 percent who said they felt that way a week earlier.

Obama cut short a Hawaii vacation to fly to Washington and
the Senate returns to work today in an effort to find a
compromise plan.

“What we’re trying to communicate here is the urgency of
the situation,” said Daniel Stohr, the aerospace association’s
chief spokesman. “They at least need to address sequestration.
That won’t wait. There’s a sense the tax portion of the fiscal
cliff negotiations aren’t as urgent because you can fix it
retroactively.”

‘Apocalyptic Claims’

Still, calls to separate budget cuts from the tax debate
“are likely to fall on deaf ears,” said Todd Harrison, a
defense analyst at the Center for Strategic and Budgetary
Assessments in Washington.

“They have been making downright apocalyptic claims about
sequestration for over a year now and it hasn’t stirred Congress
to action,” Harrison said by e-mail. “I don’t see why this
will be any different.”

When asked if his group’s proposal has won endorsements
from any lawmakers, Stohr said, “not as yet,” while noting
that Congress has been out of town for the Christmas recess.

As the deadline approaches, those advocating loudest
against defense cuts have moderated their rhetoric.

Defense Secretary Leon Panetta, who has warned against a
fiscal “doomsday” if sequestration occurs, issued a memo to
defense employees last week aimed at calming nerves.

Gradual Impact

“I do not expect our day-to-day operations to change
dramatically on or immediately after Jan. 2, 2013, should
sequestration occur,” Panetta said in the memo. “This means
that we will not be executing any immediate civilian personnel
actions, such as furloughs, on that date.”

He also noted that military personnel are already exempt
from the cuts.

Robert Stevens, chairman and chief executive officer of
Lockheed Martin Corp. (LMT), warned in July that his company may have
to dismiss about 10,000 employees if sequestration occurs in
January. There is now more time before Lockheed would need to
resort to such action, Stevens said at a Dec. 14 Bloomberg
Government breakfast.

Even if federal budget cuts begin next month, “I don’t
envision now in the relatively short term any reduction in
force” until the Pentagon specifies changes in contracts,
“which may not happen until April or after April,” he said.

While the outcome of the fiscal cliff debate is still
anyone’s guess, the industry strategy to separate budget cuts
from tax relief “feels unpromising,” said Michael O’Hanlon, a
defense analyst at the Brookings Institution in Washington.

“It would essentially undo the entire logic of the fiscal
cliff and sequestration -- that different groups have different
relative priorities and so no one is going to release his or her
‘hostages’ without other hostages begin released too,” O’Hanlon
said by e-mail.